What Chinas 13th Five-Year Plan means (continued series on China)
The research arm of the Hong Kong Development Corporation has taken the opportunity to evaluate the detailed aims of China’s 13th Five Year Plan and TextileFuture is proud to present them with the latest facts and figures to its readers. We have deliberately omitted the reference index contained in the original feature
The 12th National People’s Congress (NPC) adopted the Outline of the 13th Five-Year Plan for National Economic and Social Development of the People’s Republic of China (the 13th Five-Year Plan) at its fourth session in March 2016. The document expounds on the need to fully implement a development concept based on the tenets of “innovation, coordination, green growth, opening up and sharing”. It aims to enhance the quality of development in order to ensure the establishment of a moderately prosperous society, despite the challenges of changing domestic and international environment.
Following this, China will take promotion of innovation as the primary driving force for economic and social development in the next five years (2016-2020), while pushing forward “new-style” urbanisation and making increased efforts to contain pollution. Externally, it stresses the needs to form a new pattern of all-round opening up and promote win-win cooperation with countries along the Belt and Road.
The 13th Five-Year Plan is set to have a significant impact on China’s economic development, and the subsequent changes brought about by its implementation will generate new opportunities for relevant industries. Hong Kong is not just the bridgehead of the mainland for foreign trade and economic cooperation, but also the first port of call for mainland enterprises seeking financial, legal and other professional services. The 13th Five-Year Plan clearly states that China will deepen the cooperation between the mainland and Hong Kong, and support Hong Kong in consolidating its position as an international financial, shipping and trade centre playing a part in China’s two-way opening up and in the Belt and Road Initiative.
Along with further deepening of the liberalisation of trade in services under CEPA  and the country’s further promotion of pan-Pearl River Delta (PRD) regional cooperation , these policies will give Hong Kong companies greater access to different economic and service sectors on the mainland. Hong Kong businesses should therefore pay close attention to the implementation details of the Plan in order to seize opportunities.
As regards the promotion of economic and social development, the 13th Five-Year Plan sets out the goals of maintaining a medium to high level of growth, and doubling China’s gross domestic product (GDP) by 2020 from the 2010 level on the basis of balanced and sustainable development in the next five years. It also calls for efforts to promote industrial upgrading and agricultural modernisation, while increasing the share of the service sector further in terms of GDP. The specific targets of development include:
Compared with development in the last two decades, the 13th Five-Year Plan clearly adopts a target of slower economic growth by lowering the average annual target growth rate (in real terms) from 7.8 % in the previous five years to over 6.5 % annually over the next five years. Under the impact of factors such as global economic slowdown and trade decline, China has recently seen a contraction in foreign trade. Sluggish investment growth and overcapacity in certain industries spell difficulties for some enterprises. The economy will unavoidably face downside pressure for some time to come.
In spite of this, China’s GDP has in fact overtaken many advanced economies after years of rapid growth. With GDP amounting to RMB67.7 trillion in 2015,  China is the world’s second largest economy after the US. Moreover, people’s living standards have improved significantly. For example, the per-capita disposable income of urban residents soared from about RMB4300 in 1995 to RMB 31200 in 2015. During the same period, per capita income in rural areas also increased from RMB 1600 to RMB 11400. Higher income stimulated consumption. Total retail sales of consumer goods in 2015 amounted to RMB 30 trillion, an increase of over 90 % on RMB15.7 trillion in 2010, and not far off the retail sales volume of the US. China’s tremendous growth spurt makes it one of the world’s biggest consumer markets.
Premier Li Keqiang pointed out in the Government Work Report delivered in March 2016 that every percentage point of GDP growth today is equivalent to 1.5 percentage points of growth five years ago. This suggests that although China’s economy may slow down somewhat in the next few years, given a fairly high base and a steady pace of growth, the actual increases in economic activities and income amount may not be much different from that of the 12th Five-Year Plan period.
(These figures are based on a new statistical method.Sources: National Bureau of Statistics of China; Statistical Communiqué on 2015 National Economic and Social Development; Government Work Report, March 2016; and 13th Five-Year Plan)
In order to achieve sustainable development, another priority of the 13th Five-Year Plan is to find new drivers for economic growth to prevent the economy from becoming stagnant under the constraints of the past development model and falling into the “middle income trap” due to a lack of growth momentum. Although the Chinese economy is booming and industrial and commercial activities are growing, rising economic costs and social problems caused by a mode of economic development which seeks to achieve capacity expansion and growth by continuously increasing labour, energy and other inputs, have aroused great concerns among the government and the public. Environmental and pollution problems in many regions are directly affecting people’s livelihoods. There is also a general shortage of labour in the coastal areas. This, coupled with land shortage as a result of rapid urbanisation and industrial development, has caused problems like higher land costs and recruitment difficulties in many economic spheres. Rising production and other business costs have become the norm in recent years.
On the other hand, with the rapid expansion of industries, the value added by China’s industries soared from RMB 4 trillion in 2000 to RMB 22.9 trillion in 2015. Undoubtedly, China is the leader in the production of many consumer and industrial goods. Its garments, toys, home appliances and consumer electronics, for instance, account for the lion’s share in the global market. However, rising costs and sluggish overseas markets have led many enterprises to increase their competitiveness through transformation and upgrading in recent years. Despite these, most industrial activity is still concentrated on the production of low technology products through labour-intensive processes for relatively slim profits. High-tech production activity currently only accounts for 11.8% of the country’s total industrial value added. Thus, accelerating industrial upgrading, encouraging enterprises to shift from low value-added business to medium- and high-end manufacturing, eliminating inefficient and outdated production capacity, while bringing industrial and production activities to a higher level, are all problems to be solved in the 13th Five-Year Plan.
After years of structural reform, and market liberalisation, foreign and private capitals have not only found their way into different industrial sectors, but have also gained access to a wide range of services, gradually altering China’s economic landscape. The service sector accounted for more than half the country’s GDP for the first time in 2015, reaching the level of 50.5 %. The contribution of consumption to economic growth also reached 66.4 %, suggesting that the economy is shifting from one dominated by traditional industries to one with services and consumption as the main drivers. The 13th Five-Year Plan thus also focuses on ways to produce innovations in the investment regime, reduce market intervention, and further open the market in an orderly manner, while promoting upgraded consumption and stimulating the growth of modern services.
Against this backdrop, the 13th Five-Year Plan will focus on innovation and implementation of an innovation-driven strategy in economic and social development, increase the contribution of consumption to economic growth, and improve the efficiency of investment and enterprises in the 2016-2020 period. It also clearly states that action will be taken to improve the quality of urbanisation, coordinate and optimise regional development, improve the overall ecological environment, and continuously expand the scope of opening up to enhance the country’s capabilities of utilisation of global resources.
Innovation, industry upgrade and online economy
The 13th Five-Year Plan makes innovation the primary driver of economic development. It contemplates to find new drivers by making use of scientific innovations and encouraging mass innovation and entrepreneurship. It also announces the launch of six key scientific and technological (S&T) projects, and nine other major projects under the “Scientific Innovation 2030” initiative, as well as the implementation of the “Made in China 2025” strategy in order to build a strong manufacturing country, and to improve the manufacturing sector’s innovation capacity, as well as the competitive edge, while promoting the development of strategic emerging industries. Additionally, it will promote the application of information technology and seek to expand the scope of the online economy. Target industries and areas of development include:
Boosting scientific innovation
– Increase R&D/GDP ratio to 2.5 % by 2020 (2.1 % in 2015)
Efforts will be made to encourage R&D, to strengthen technology integration capability, and to import technology from abroad, targeting advanced technologies including next-generation information communications, new energy, new materials, aviation and space, biomedicine, and smart manufacturing. Action will also be taken to improve tax concession policies for corporate R&D expenses, and expand preferential treatment for accelerated depreciation of fixed assets to encourage enterprises to upgrade their equipment and apply new technology.
Promoting mass entrepreneurship and mass innovation
The Mass Entrepreneurship and Mass Innovation initiative encourages the development of new technologies, new products and new business formats and the establishment of technology transfer platforms to provide support services to start-up firms. The cultivation of entrepreneurship will be improved, and greater scope will be given to the role of government venture capital in guiding funds. At the same time, the regulatory regime will be improved to regulate the development of rewards-based and equity-based crowdfunding and online lending activities.
“Made in China 2025”
The “Made in China 2025” policy document will be implemented to strengthen the fundamental capacity of industry, including manufacturing of key basic materials and core parts and components, accelerate the development of intelligent and other new types of manufacturing, and strengthen quality and brand building. Steps will be taken to promote the upgrading of traditional industries and actively eliminate backward capacity.
Developing strategic emerging industries
This includes boosting emerging industries such as next-generation information technology, new energy vehicles, biotechnology, green and low-carbon industries, high-end equipment and materials and digital creativity, as well as developing strategic industries such as space and sea navigation, information networks, life sciences and nuclear technology.
Increasing network speeds and expanding the online economy
– Internet-fixed broadband penetration rate to increase to 70 % by 2020 (40 % in 2015)
– Internet-mobile broadband penetration rate to increase to 85% by 2020 (57% in 2015)
This includes building safe and high-speed next-generation information infrastructure, accelerating the implementation of the “Internet Plus” action plan, developing wireless broadband, the IoT (Internet of Things) and big data analytics technology and application, and formulating plans to shape the next-generation Internet and related technologies.
Developing new systems and reducing enterprise burdens
Action will be taken to improve administrative efficiency by simplifying industry and commerce administration systems, accelerate reform of the financial system, further promote the development of the capital market, and raise the efficiency of the financial sector in serving the real economy. Efforts will also be made to reduce contributions and unreasonable charges payable to the so-called “five social insurances and one fund” and alleviate the tax burdens on enterprises.
Based on these development directions, it can be expected that implementation of the 13th Five-Year Plan will boost the mainland’s demand for various types of new and high technology. In certain high-tech industries, such as IoT, Internet of Things applications and development of the next-generation Internet, China currently lacks expertise, which means related R&D and technology application is somewhat constrained. However, Hong Kong’s technical personnel are well versed in advanced foreign technology and excel in using technologies developed to international standards/frameworks. They can therefore assist in the commercialisation of related projects in the mainland in order to meet the technological demands listed in the 13th Five-Year Plan.
Advancing mass entrepreneurship and mass innovation is a long-term strategy for promoting economic growth under the 13th Five-Year Plan. Makers and investors are rushing into different technological ventures in spite of risks. This has produced huge demand from “technopreneurs” for not only financial resources but also support in areas such as technology, market connections and entrepreneurial development. Technology players and investors based in Hong Kong may take advantage of the city’s long-standing advantages, such as free flow of information and capital, to become important partners for Mainland technopreneurs and satisfy their demand for all kinds of services.
Meanwhile, the Mainland hopes to make use of innovation to facilitate industrial upgrades. For instance, the policy paper “Made in China 2025” stated that enterprises will be encouraged to strengthen their product design capabilities in order to shift from OEM to ODM, and develop their own branded business. This should provide opportunities for Hong Kong’s design and branding service suppliers. A recent survey conducted by HKTDC Research found that mainland enterprises wish to obtain service support from Hong Kong or foreign countries in the following areas: product development and design; brand design and promotional strategy; and marketing strategy.
Hong Kong, as an international financial centre in the region, can provide mainland enterprises with loan and financing services, including cost-effective capital for technology and industrial projects, and help mainland enterprises to lower financial cost. Furthermore, as Hong Kong is one of the largest venture capital management centres in Asia, a large number of top-notch international fund managers wishing to grasp business opportunities in China have already established a foothold in Hong Kong, which can offer financing channels for mainland enterprises. It can be expected that during the 13th Five-Year Plan period the mainland will further open up its financial services market, which should bring about more opportunities for Hong Kong financial service suppliers.
Modern infrastructure and balanced Regional Development
The 13th Five-Year Plan also emphasises the need to optimise the spatial distribution pattern of development and better support economic and social development. This will happen through the construction of efficient, intelligent and green infrastructure facilities, including modern intercity transport networks, land, sea and air transportation systems connecting different parts of the country, neighbouring countries and those along the Belt and Road, as well as energy storage and transport networks and other comprehensive modern transport systems. Efforts will also be made to promote “new-style” urbanisation and coordinated regional development. This covers the following main areas:
Advancing new urbanisation construction
– Urbanisation rate to reach 60% by 2020 (56.1% in 2015)
Steps will be taken to advance a people-centred new urbanisation plan; enhance urban planning, construction and management; deepen household registration system reform; and assist rural migrants capable of securing a stable job in urban areas in obtaining urban resident status.
Advancing coordinated regional development
This includes deepening the Go West initiative and promoting development of the central region. Emphasis will be placed on encouraging the coordinated development of certain regions, such as advancing the coordinated development of the Beijing-Tianjin-Hebei region and the Yangtze River Economic Belt. Regional development will be achieved by way of optimising urban development planning, encouraging regional transportation integration, and improving regional environmental planning.
In attaching importance to the strategy of balanced development of the eastern and western regions and urban and rural areas, the 13th Five-Year Plan aims to tackle problems brought about by disparities in regional development in the past and by the rapid pace of urbanisation of some localities. These problems include:
– Insufficient transport facilities, environmental resources and supporting municipal facilities in certain city clusters
– The polarised development of the urban and rural areas quickening the pace of migration into cities, increasing the pressure on urban development
– Heightened pressure on transportation and communication systems; and
– Increasingly obvious water and air pollution problems, which have created demand for energy saving and emissions reductions.
The rate of urbanisation in the mainland rose rapidly from 36.2 % in 2000 to 56.1 % by end-2015. The pace is particularly fast in more developed regions – for instance, the urbanisation rate in some of the YRD provinces exceeds 65 %, which has created the problems mentioned above. In view of this, the 13th Five-Year Plan makes “new-style” urbanisation a development priority, with efforts devoted to enriching the content of urban and rural development and making better urban living a development objective, instead of simply seeking urban construction or expanding the boundaries of cities.
Against this backdrop, the 13th Five-Year Plan will not only bring about upgrades to coastal cities but also stimulate the construction and economic activities of urban and rural areas in the central and western regions, as well as the old industrial regions in the north-east. For instance, where building new city clusters is concerned, efforts will be made to strengthen the construction of daily-life supporting facilities in the relevant urban and rural areas, and to upgrade infrastructure, such as cross-regional intercity and trans-regional transport systems.
Hong Kong is not only an international financial centre that can support urban development in the mainland with extensive project financing channels, but also an important commercial services platform in the Asia-Pacific region. With a pool of local and foreign infrastructure construction service suppliers in extensive fields, Hong Kong has rich experience in different modes of urban development and management. Meanwhile as the scope of urban construction continues to expand in the mainland, infrastructure enterprises with full-service capabilities are needed to satisfy market demand for infrastructure and overall planning. Additionally, as mainlanders’ income level continues to rise, they are becoming more demanding with regard to the quality of urbanisation. Hence, when government departments in charge of planning and developers set out to advance urbanisation, priority is given to development quality over speed and quantity. This will create opportunities for qualified service suppliers wishing to tap the China market.
Moreover, regional development and urbanisation are bound to change the urban landscape rapidly in different regions. The emergence of new commercial districts will prompt the distribution and retail sector to shift toward modern business modes, besides bolstering development of the consumer markets in small coastal cities and in the central and western regions. Hong Kong companies wishing to enter these “emerging markets” must assess local purchasing power, pay attention to the consumption patterns of different cities, and withstand intense price competition from online businesses.
Furthermore, under the 13th Five-Year Plan, the mainland may quicken its pace of building smart city clusters and apply next-generation information technology to raise the efficiency of city management. This should directly boost the demand for the application of IoT technology in a number of areas, such as transport, environmental monitoring and municipal management, generating opportunities for relevant service suppliers to enter the market.
As the development of transport logistics network in the mainland matures, it will bring about further development of logistics services and e-commerce. For instance, as demand for cold chain logistics rises rapidly, it is in urgent need of importing advanced cold chain solutions in order to raise overall operation efficiency and quality. Moreover, while domestic online shopping grows in leaps and bounds, cross-border e-commerce and related logistics services have yet to develop. In comparison, Hong Kong not only has rich experience in cold chain logistics management but also a sound e-commerce and logistics platform. Hong Kong is therefore well positioned to capture such opportunities presented by the 13th Five-Year Plan.
Green and Sustainable Development Goals
Both the 13th Five-Year Plan and the Party leadership have stressed on many occasions that while efforts will be made to advance social and economic development, action will also be taken to bring about a resource-efficient and eco-friendly society and strengthen environmental protection in order to ensure sustainable progress. Indeed, environmental problems have accumulated on the mainland, with serious smog, water and soil pollution in some places. Against this background, the 13th Five-Year Plan sets out the following development plans:
Accelerating improvements to the ecological environment
This includes rationally controlling land development intensity, increasing ecological space, promoting the optimisation of industry in the development zones (such as those in the Beijing-Tianjin-Hebei, YRD and PRD regions) in a high-end, low pollution and low land use direction, and also implementing a negative list approach for operations in key ecological areas. In addition, measures will be taken to cut down on energy, water and land use, and develop a circular economy.
– Strengthening resources and environmental management (2020 target compared with 2015 cumulative figure)
~ Water consumption per RMB10,000 of GDP 23 % ↓
~ Energy consumption per unit GDP 15 % ↓
~ Carbon dioxide emissions per unit GDP 18 % ↓
~ Raising the share of non-fossil fuels in the country’s primary energy mix to 15 % (12 % in 2015)
Strengthening pollution control
Steps will be taken to implement the pollution control action plans, strictly enforce various environmental indexes, promote pollutant discharge standards and emissions reduction measures (including orderly relocation and transformation or closure of heavily polluting enterprises in the built-up areas of cities), and carry out clean production transformation in key industries. Greater efforts will be made to contain air, water and soil pollution; regulatory requirements for industrial pollution sources to meet emissions standards will be fully implemented; polluting enterprises will be transformed and projects that cause serious pollution will be banned; urban domestic sewage and refuse treatment will be fully advanced; and enforcement of relevant laws will be strengthened.
– Reduce total emissions of major pollutants (2020 targets compared with 2015 cumulative figure)
~ Chemical oxygen demand 10 % ↓
~ Ammonia nitrogen 10 % ↓
~ Sulphur dioxide 15 % ↓
~ Nitrogen oxides 15 % ↓
Developing green and environmental industries
This includes supporting innovation in technical equipment, and service modes; encouraging the development of energy-saving and environmental technologies and services; promoting performance contract arrangements for energy and water management; enhancing energy-saving environmental engineering technology and equipment manufacturing capacity; and establishing a green financial system with green credit and green securities to accelerate the building of a green supply chain industrial system.
During the 13th Five-Year Plan period, the mainland will further strengthen energy saving, emissions reduction and environmental protection policies. In particular, the new Environmental Protection Law, which came into effect on January 1, 2015, aims to tackle environmental pollution issues, including authorising environmental protection departments to close down facilities which have caused serious environmental pollution and to order units emitting excessive pollutants to limit or cease production. It also sanctions heavier penalties and punishments for non-compliance.
Demand from mainland enterprises and relevant units for environmental protection services such as energy saving and pollution prevention and containment is bound to rise rapidly, supported by government measures. They will be encouraged to take greater initiative in seeking environmental protection services to meet requirements for energy saving, emissions reduction and emissions standards. In view of this, the 13th Five-Year Plan should provide environmental protection service and technology companies possessing the right technology and expertise with extensive room for market expansion.
Hong Kong’s environmental protection companies and technical personnel have accumulated rich experience in specialised project management over the years. As such, they possess advantages in providing one-stop services and excel in combining advanced environmental protection technology from foreign countries with low-cost parts and components from the mainland. With the support of various financial services in Hong Kong, they can also provide mainland clients with project financing services, such as performance contracting for energy and water efficiency. They are therefore well positioned to make forays into the mainland environmental protection market. Moreover, Hong Kong’s favourable business environment makes its companies ideal cooperation partners for foreign environmental protection technology players interested in undertaking technology transfer and licensing in the mainland.
It is worth noting that Hong Kong companies wishing to capitalise on environmental protection opportunities in the mainland have to obtain a qualification licence issued by the relevant department of the mainland government. For instance, if they wish to provide environmental protection system engineering design services or environmental protection facilities operation services, they may need to obtain a qualification licence from the relevant national or local environmental protection department. However, CEPA has introduced a lot of liberalisation measures facilitating Hong Kong companies’ provision of environmental protection services in the mainland (including establishing wholly-owned enterprises in the mainland to provide such services as sewage and waste treatment) and to apply for qualifications to operate environmental pollution control facilities. Furthermore, as Hong Kong has signed an agreement on the liberalisation of trade in services with the mainland, Hong Kong service suppliers entering the mainland environmental protection market are entitled to national treatment. This has given Hong Kong companies the advantage of entering the mainland environmental protection market earlier than their foreign counterparts.
A New Horizon in Opening Up
In recent years, China has significantly liberalised administrative measures on outbound investment to encourage enterprises to “go out” and invest overseas, establishing sales networks in foreign markets, while at the same time “bringing in” the advantages of foreign partners in order to enhance competitiveness. The government is also proactively encouraging free trade zones in Shanghai, Guangdong, Tianjin and Fujian to open up, as well as advancing the Belt and Road initiative in the hope of leveraging the comparative advantages of the PRD, YRD and Bohai Rim in order to strengthen economic ties with countries along the route. Against this backdrop, the 13th Five-Year Plan will strengthen liberalisation in the following ways:
Strengthening two-way opening up
Steps will be taken to strengthen the construction of ports and infrastructure facilities in inland border areas, build cross-border multimodal transport corridors, and bolster the development of border economic cooperation zones and cross-border economic cooperation zones. Action will also be taken to accelerate the optimisation and upgrading of foreign trade; develop producer services trade; actively expand imports; optimise the import mix; raise the level of foreign capital utilisation and outbound investment; and give enterprises support in expanding outbound investment in order to deeply integrate with the global industrial chain, value chain and logistics chain.